Bernanke speaks and rates rise for consumers and businesses while financial markets plunge

WASHINGTON — All it took was speculation that the Federal Reserve could slow its bond buying months from now — and then a few words Wednesday from Chairman Ben Bernanke to confirm it.

The result is that record-low interest rates that have fueled economic growth, cheered the stock market, shrunk mortgage rates but punished savers are headed up. And once the Fed starts scaling back its bond purchases, those trends could accelerate.

It means home loans are starting to cost more. Corporations will pay more to borrow. Bond investors are being squeezed. The stock market is plunging.

The yield on the 10-year Treasury note, a benchmark for long-term mortgage rates and other loans, hit 2.43 percent Thursday. As recently as May 3, it was 1.63 percent.

And the fact that Bernanke and the Fed think the economy is healthier represents a critical dose of confidence. Slightly higher rates may spook stock and bond traders. But in the long run, a robust economy should sustain the housing rebound, support job growth and encourage businesses to borrow, even at somewhat higher rates.

More economic growth should ultimately boost stock prices, too. Long-term investors saving for retirement, college educations and other major costs stand to benefit.

The Fed's $85 billion-a-month in bond purchases have helped keep long-term rates down. Bernanke said he expects the Fed to stop buying bonds altogether by the middle of 2014 if it feels the economy can manage without that stimulus. He stressed, though, that if the economy weakens, the Fed won't hesitate to step up its bond purchases again.

Here's how higher rates will affect consumers, businesses, investors and other players.

— CONSUMERS.

The main impact on consumers will likely be higher mortgage rates. Rates on auto loans, student loans and credit cards probably won't rise much soon. They're more closely tied to the short-term rate the Fed controls. That rate isn't expected to rise before 2015.

The average rate on a 30-year mortgage jumped from a record low of 3.31 percent in November to 3.98 percent last week, according to mortgage giant Freddie Mac. That's the highest point in more than a year.

Mortgage applications fell 3.3 percent last week, according to the Mortgage Bankers Association, though they're still up from their level a year ago.

But economists say the housing recovery can withstand higher rates. At an annualized rate, sales of previously occupied homes topped 5 million in May for the first time in 3½ years.

Steady job gains and solid consumer confidence should fuel sales in coming months, even if rates are higher.

"It's that improving economy that's bringing people back into the housing market," said Greg McBride, senior financial analyst at Bankrate.com. "The recent rise in mortgage rates does not negate that."

The biggest barrier for many home buyers has been difficulty obtaining a mortgage. Banks have tightened lending standards since the financial crisis erupted in 2008. Higher loan rates would allow banks to make more from mortgage lending and could lead them to lend more freely.

"The irony is that higher rates are likely to mean more people can get mortgages," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank.